Thursday, August 16, 2007

Did Warren Buffett prod China to act in Sudan?

Be it coincidence or by design, Buffett and Berkshire Hathaway Inc. sold a small stake in the Chinese oil company a few days before July 31, when the United Nations passed a groundbreaking resolution. The agreement authorizes a U.N. peacekeeping force of 26,000 to police Darfur. It's an agreement brokered largely by the support of China.

The police force is a small first step in the bid to end the violence, and the resolution authorizing it did not come easily. The Economist magazine reports that the West's efforts to pressure the Sudanese government largely have been ineffective.

"It is the Chinese ... who have really made this possible," the Economist reported on Aug. 2. "As the buyer of most of Sudan's oil, China has always been the key to imposing real pressure on the murdering government in Khartoum. For years it did nothing, reasoning that the best way to protect its commercial interests was to indulge the wishes of the regime in Khartoum at almost every turn." Shortly before the Chinese about-face, Buffett and Berkshire Hathaway divested a small portion of PetroChina, 0.09%, or 16.9 million shares. For Buffett the capitalist, Berkshire sold PetroChina at $1.59 a share to claim proceeds of $26.87 million a price near the all-time high for the stock, according to reports. Officials at Berkshire Hathaway did not return calls seeking comment, but Buffett has often talked about his investment in PetroChina.

"Berkshire Hathaway invested in PetroChina because it was cheap, not because it was China," Buffett the capitalist told a group of college students.

For Buffett the philanthropist, the divestment may have carried some symbolic meaning as well. In May, dissident shareholders criticized the PetroChina investment openly at the company's annual meeting in Omaha, Neb. They asked Buffett to divest; they were rebuffed. See earlier column on Buffett and PetroChina.

Change of heart

Fewer than two months later, Buffett pared his stake. It wasn't enough to send anyone at the oil ministry in Beijing into a panic, but it did get the attention of the media. The Chinese, hosts of the Olympic Games in less than a year, are feeling the growing intensity of the world's scrutiny. There are image problems: tainted toys, poisoned personal products, pollution, human rights and global warming, to name a few.

The country's strong connection to the Sudanese government has drawn criticism for good reason. The state oil company, China National Petroleum, is the parent of PetroChina and a partner with the Sudan for oil ventures there. Many top managers at PetroChina are executives of the state company, CNPC. Oil proceeds fund the Sudanese government's efforts there, along with the brutality, rape and torture. Buffett the philanthropist must be disgusted. The man who pledged to give $40 billion to the Bill & Melinda Gates Foundation a year ago certainly would not tolerate a business that finances genocide.

The California Public Employees' Retirement System, or Calpers, has divested itself of PetroChina as have other university endowments and investors.

So he sends a message to Beijing: Look, I can sell and I will. You have a $30 billion oil giant, but how would the world react if the famous Warren Buffett cashes out a stake worth close to $3.3 billion?

A bad investment

Ultimately, Buffett the capitalist must have realized that investing in PetroChina was a bad idea. Funding the bloodshed and the relief don't make much economic sense.

The Gates' charity that will get a fortune from Buffett has spent millions aiding Sudanese refugees. In December, it pledged $1 million each to fund Save the Children and CARE there. UNICEF's immunization effort in Darfur, the International Medical Corps, the International Rescue Committee also are beneficiaries of the Buffett-backed foundation and that's just a few.

What if Buffett's divestment was simply profit-taking in a stock that was reaching new highs? What if he couldn't give a hoot about PetroChina, Darfur, Khartoum, the CNPC or genocide?

Then the stock sale and subsequent China-backed U.N. action are one time when luck for those at the top also means luck for those at the bottom. It also means Warren Buffett has created an enemy of his own image.

"Doing charity work is the opposite of investing we look for the most difficult problem to solve and the ones that have the lowest probability of success," Buffett told an audience.